About two months ago, this columnist was asked to prepare a short report to the SEC’s Investor Advisory Committee on the then still largely unnoticed trend toward bylaw and charter provisions that imposed some form of a “loser pays” rule on plaintiffs in intracorporate litigation. After a quick and dirty investigation, I reported three interesting facts.
First, between May 29, 2014 and Sept. 29, 2014, some 24 companies had adopted such a provision (always applicable only to plaintiffs and always without the matter being put to a shareholder vote). This was obviously a rapid response to the Delaware Supreme Court’s decision in May 2014 in ATP Tour v. Deutscher Tennis Bund,1 which upheld the facial validity of such a bylaw that had been adopted by a Delaware non-stock corporation. Since then, the number has grown further, and some of the better known law firms in the United States appear to be adopting this tactic as part of their standard IPO playbook.
